Tribunal decision: Partial success, disallowances upheld, tax liability valid.

The Tribunal partly allowed ITA Nos. 971/Bang/2018 and 1925/Bang/2017, remanding certain issues back to the AO for fresh consideration. ITA No. 972/Bang/2018 was dismissed. The disallowance of provision for ex-gratia payment for AY 2009-10 was challenged and remitted for fresh consideration. Disallowances under section 14A for both AYs were upheld due to insufficient evidence. The computation of tax liability under section 115JB was deemed valid, and the validity of proceedings under section 148 for AY 2010-11 was upheld.

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Issues Involved:
1. Disallowance of provision for ex-gratia payment.
2. Disallowance under section 14A of the Income Tax Act.
3. Computation of tax liability under section 115JB.
4. Validity of proceedings under section 148 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Provision for Ex-Gratia Payment:
The assessee challenged the disallowance of Rs. 18,90,000 towards ex-gratia payment for the Assessment Year (AY) 2009-10. The AO disallowed this amount, considering it an unascertained liability. The CIT(A) concurred, stating that the liability was contingent as it required government approval. The Tribunal referred to the Supreme Court's decision in Bharat Earth Movers Vs. CIT, which states that a business liability should be allowed as a deduction if it is definite, even if it needs to be quantified later. The Tribunal remitted the issue back to the AO for fresh consideration, directing the assessee to provide evidence that the liability was ascertained based on government rules/policy.

For AY 2010-11, the assessee contested a similar disallowance of Rs. 38,90,000. The Tribunal observed that this issue was not part of the order passed under section 143(3) r.w.s. 147 and thus dismissed the grounds. However, it noted that the issue would be adjudicated in ITA No.1925/Bang/2017, where it remanded the issue back to the AO for fresh consideration, consistent with the directions for AY 2009-10.

2. Disallowance under Section 14A of the Income Tax Act:
For AY 2009-10, the AO disallowed Rs. 41,28,225 under section 14A read with Rule 8D, as the assessee earned exempt dividend income of Rs. 7,70,76,402 and incurred interest expenditure of Rs. 2,50,93,000. The AO applied Rule 8D(2)(ii) and (iii), concluding that investments were made from a common pool of funds, and the assessee did not maintain separate records. The CIT(A) upheld this disallowance, noting that the assessee failed to provide a fund-flow breakup to counter the AO's findings. The Tribunal upheld the disallowance, stating that the assessee did not sufficiently demonstrate that borrowed funds were not used for tax-free investments.

For AY 2010-11, the facts and reasons for disallowance were identical to AY 2009-10. The AO disallowed Rs. 36,52,797 under section 14A read with Rule 8D. The CIT(A) confirmed this disallowance, and the Tribunal upheld it, applying the same rationale as for AY 2009-10.

3. Computation of Tax Liability under Section 115JB:
The assessee contested the computation of tax under section 115JB, arguing that it was done without a show-cause notice, violating principles of natural justice. The Tribunal dismissed these grounds, stating that the computation under section 115JB is automatic if conditions are satisfied, and there was no claim of violation of the section's provisions.

4. Validity of Proceedings under Section 148:
For AY 2010-11, the assessee challenged the validity of proceedings under section 148, arguing that the AO issued a notice under section 154 and then under section 148 without continuing the former. The Tribunal upheld the proceedings, stating that sections 154 and 148 serve different purposes, and as long as conditions for section 148 are met, the initiation is valid.

Conclusion:
- ITA Nos.971/Bang/2018 and 1925/Bang/2017 were partly allowed for statistical purposes, remanding certain issues back to the AO for fresh consideration.
- ITA No.972/Bang/2018 was dismissed.

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